The Chinese housing market has transitioned from a welfare-based system to a commodity-based system since 1998, leading to price increases and resource shortages. Recent government policies aim to stabilize the market, but the second-hand housing market has become increasingly important due to population growth and land supply constraints. Information asymmetry is a major problem in this market, creating a "lemon market" dilemma exacerbated by trust issues. This paper addresses the lack of research on the micro-level effects of social trust on housing prices. Specifically, it investigates how the degree of trust between buyers and sellers influences price bargaining, exploring the concept of a 'trust premium' – the price difference reflecting the reduction in transaction risk due to trust. The study examines the role of age differences ('youth capital'), the potential substitution effect of local advantage, and gender differences in influencing the impact of trust on price bargaining. Four research questions guide the study: 1. How does the degree of trust affect price bargaining in second-hand housing transactions? 2. How does 'youth capital' moderate the effect of trust on bargaining power? 3. Is there a substitution effect between trust and local advantage? 4. Are there gender-based differences in the impact of trust on price bargaining?

Existing literature primarily focuses on the macroeconomic impact of social trust, neglecting its micro-level mechanisms, particularly in addressing information asymmetry in markets. While research exists on how trust affects corporate or individual decision-making, there's a gap in understanding the economic payoff of trust, the 'trust premium', in specific markets like second-hand housing. Studies show that trust, as social capital, can solve market collapse problems caused by information barriers and risk aversion, and that it is often built from shared cultural backgrounds or repeated interactions. However, research on the bilateral trust between buyers and sellers in the context of housing transactions, particularly in China, is limited. The Chinese second-hand housing market, with its substantial transaction volume and information asymmetry, presents a fertile ground for examining the impact of trust as an informal institution in the absence of robust formal institutions.

The study utilizes monthly transaction data from a major Chinese real estate agency covering 17 cities and spanning 7-22 months. The data include transaction details, trader information (birthplace, gender, age), and listing information. The Chinese Entrepreneur Survey System 2000 (CESS2000) is used to measure the degree of trust between buyers' and sellers' provinces of origin, creating a bilateral trust score for each transaction. A Hedonic Price Method (HPM) approach is used, incorporating the negotiation rate (calculated as [(final listing price - transaction price) / final listing price] x 100%) as the dependent variable. The independent variable is the bilateral trust score, while control variables include housing characteristics (e.g., number of bedrooms, size, age, location), transaction costs (e.g., seller's ownership history), and market demand-supply indicators. The basic regression model includes city and month fixed effects and controls for community clustering to address autocorrelation. Robustness checks involve alternative trust measures (sum of unilateral trust, log of trust), sample adjustments, and an instrumental variable approach using dialect to address endogeneity concerns. Additional analyses explore the moderating effect of age difference ('youth capital'), the substitution effect of local advantage, and the heterogeneity of trust's impact across genders.

The study's key findings demonstrate a significant positive relationship between the degree of trust and the negotiation rate (Table 4). Higher trust levels lead to higher negotiation rates, benefiting buyers. This finding is robust across various robustness tests (Table 5), including alternative trust measures, sample adjustments (excluding same-city transactions), and instrumental variable (IV) tests using dialect as an instrument to address endogeneity (Table 6). Analyses of the moderating effect of 'youth capital' (Table 7) reveal that the positive impact of trust on negotiation rate is stronger when buyers are younger than sellers, indicating that age differences influence risk tolerance and bargaining power. The substitution effect analysis (Table 8) shows that local advantage partially substitutes for the role of trust in reducing transaction risks. The effect of trust is more pronounced in transactions involving non-local buyers and sellers, suggesting that trust plays a more crucial role in situations where local information networks are less available. Finally, gender heterogeneity analyses (Table 9) indicate that the positive effect of trust is stronger in transactions between male traders compared to those involving female traders, hinting at gender-based differences in trust and risk aversion.

The findings support the hypothesis that trust significantly impacts price bargaining in the second-hand housing market. The positive relationship between trust and negotiation rate suggests that trust acts as a mechanism for mitigating information asymmetry and reducing transaction costs. The significant positive coefficients in the regression models, robust across various specifications, provide compelling empirical evidence for the 'trust premium' concept. The moderating role of 'youth capital' highlights the importance of considering individual characteristics and risk preferences in the negotiation process. The substitution effect between trust and local advantage indicates that informal institutions like trust can partially compensate for the lack of formal institutional support. Gender differences emphasize the influence of social and biological factors on trust-related economic behavior. The results are relevant to both theoretical and policy implications.

This study provides novel empirical evidence of a significant 'trust premium' in the Chinese second-hand housing market. Trust alleviates information asymmetry, benefits buyers, and is amplified by 'youth capital' and non-local transactions. Local advantage offers a partial substitute for trust, while gender heterogeneity significantly impacts trust's effect on negotiation. These findings inform the development of social credit systems to reduce transaction friction and improve market efficiency. Future research could explore other contextual factors, refine trust measurement, and broaden geographical scope for stronger generalizability.

The study's limitations include the use of negotiation rate as a proxy for trust premium, the reliance on CESS2000 data (potentially outdated), and the geographically limited sample from a single real estate agency. Data privacy constraints also limited the availability of national-level second-hand housing transaction data. Future research could refine the measurement of trust, utilize more contemporary data, and expand geographical scope to improve the generalizability of the findings.